Deficit Demagogues

NY Times ^ | 3/21/6

[Crackingham]

Less than a week after he denounced the "wayward path" of deficit spending to a gathering of 2,000 Republican Party stalwarts, Senator Bill Frist, the Senate majority leader and would-be president, was busy presiding over business as usual in the Senate. Last Thursday, Mr. Frist, 49 of his fellow Republican senators and one Democrat approved a $2.8 trillion budget for 2007. The budget vote came just hours after Mr. Frist and 51 other Republicans voted to raise the nation's debt limit for the fourth time in five years — this time by $781 billion, to nearly $9 trillion. All of that increase will be needed to pay for earlier tax cuts and spending increases, and, if the Republicans get their way on taxes, to pay for future deficit-financed tax cuts.

Wayward, indeed. Mr. Frist has voted for every major spending increase and tax cut backed by President Bush since 2001. As the Senate leader for more than three years, he bears even greater responsibility than his fellow enablers for the country's dismal financial condition. Yet he is certainly not alone these days in calling for greater budget restraint while pursuing reckless policies. Other Republican presidential hopefuls, notably Senator George Allen and Senator John McCain, have also been coming out forcefully as fiscal conservatives.

Mr. Allen's record is no better than Mr. Frist's. Mr. McCain made a stand by voting against the Medicare prescription drug benefit in 2003 and Mr. Bush's tax cuts in 2001 and 2003. But, he supports extending tax cuts for investors, even though they are not paid for.

.......

Spend wisely. For all their recent talk about wasteful spending, none of the Republican hopefuls have offered specifics about what they would ax. A serious leader would balance spending and taxes in order to govern well.

[Hendrix]

And the Democrats would fix this problem by spending even more and taxing even more.

[ziggygrey]

As I said before, if we can't balance the budget with a Repub WH and a Repub Congress, is there any hope of it ever getting balanced?

[Once-Ler]

Mr. Allen's record is no better than Mr. Frist's. Mr. McCain made a stand by voting against the Medicare prescription drug benefit in 2003 and Mr. Bush's tax cuts in 2001 and 2003. But, he supports extending tax cuts for investors, even though they are not paid for.

Bush's fault again? No. Dubya proposed spending caps. The Congress ignored them, and taxcuts don't need to be paid for. It my damn money. Frist, Allen and McCain need to cut spending.

[Jack Black]

Bush has the veto. He has not used it. The Republicans have passed these budgets.

Face it, we've met the enemey and he is us.

[evaporation-plus]

As I said before, if we can't balance the budget with a Repub WH and a Repub Congress, is there any hope of it ever getting balanced?

When the foreign banks finally decide they have lent us enough, hard decisions will have to be made. Till that time, no matter who's in power, the deficit spending will continue. Just think, we're getting all those wonderfull programs at a discount, only paying for about 80 percent. Charging the rest to our grand-kids.

[georgia2006]

""he supports extending tax cuts for investors, even though they are not paid for""


cutting the capital gains tax increases tax revenues because when taxes on capital go down, the rate of retun to capital goes up...those who favor high capital gains taxes forget that without capital gains there is nothing to tax....raising the tax on capital gains reduces the rate of return to an asset, thus lowering its price....if you were to sell that asset, you wouldnt pay a penny in tax, in fact youd exerience a loss that you could use to reduce your overall tax liability...and if tax rates were high, that would be quite a bit of revenue you could deprive the govt of

[Doe Eyes]

As I said before, if we can't balance the budget with a Repub WH and a Repub Congress, is there any hope of it ever getting balanced?

Sadly, Republican support of the Balanced Budget Amendment, along with Term Limits, stopped when they became the majority party.

[CBart95]

There are "Lies".

There are "Damned Lies".

Then there's The NYT.

[Luis Gonzalez]

History

...of the deficit

The United States has been running a significant peacetime deficit since the late 1970's. The chronic peacetime deficits of the 1980's and the 1990's has led to the view that democratic governments are in some sense wrongly predisposed to running large and persistent deficits, and that this tendency need to be corrected by rule of law.

Looking at the historical behavior of federal government deficits is useful in assessing this view. The figure below shows that for most of the US history the federal government tends to run up the debt during wartime and then stabilize it during times of peace.

[Einigkeit_Recht_Freiheit]

And the Democrats would fix this problem by spending even more and taxing even more.

It should be pointed out that the previous President, who was also a Democrat did, with the insistence of a real Republican Congress, balance the budget.

[Huck]

Sure, we did it in the 90s. Democrat prez, republican congress.

[ziggygrey]

Sure, we did it in the 90s. Democrat prez, republican congress

What does that say about the current admin.?

[Huck]

It's more what it says about the Congress.

[remember]

Looking at the historical behavior of federal government deficits is useful in assessing this view. The figure below shows that for most of the US history the federal government tends to run up the debt during wartime and then stabilize it during times of peace.

Those peacetime periods of stabilization actually represent improvements in our financial condition since inflation causes a constant dollar debt to shrink in real terms. In fact, it may be even more instructive to look at the debt as a percentage of GDP since this better represents our ability to service the debt (since tax receipts tend to grow with GDP). The following graph shows the federal debt as a percentage of GDP since 1940:

The actual numbers and sources are at http://home.att.net/~rdavis2/debt07.html. As can be seen, the gross federal debt dropped from a peak of 121.7% of GDP in 1946 to a low of 32.6% of GDP in 1981. It has since risen back up to 64.3% of GDP. The trouble is, the debt is projected to explode as the Boomers retire. The graphs and tables at http://home.att.net/~rdavis2/pro2007.html show the long-run projections from the latest U.S. Budget. As can be seen, the debt is projected to rise to 177.4% of GDP by 2080, over 45% above the high reached at the end of World War II.

Furthermore, these numbers may be overly optimistic. This projection is far below the projection in the 2004 Budget that the debt would reach 466 percent of GDP by 2080. The improvement in the outlook over the past three years appears to be due chiefly to the projection that receipts will rise to a historically high 22.4 percent of GDP by 2080. A secondary reason seems to be that recent budgets are projecting lower Medicare costs than the Trustees Reports on which they are based. This suggests to me that the 2004 Budget projections may turn out to be the more accurate. These topics are discussed in points 10 through 13 listed at http://home.att.net/~rdavis2/pro2007.html. I'll copy those points below:

10) Mandatory outlays projected for 2080 then dropped to 21% of GDP by the 2007 Budget. This 3.6% of GDP drop was chiefly due to a 2.1% of GDP drop in projected Medicare outlays. The projections are now about 3% of GDP less than the 2005 Trustees Report on which they were based. More information on this difference can be found at promed07.html.

11) Net interest outlays projected for 2080 rose sharply from 5.8% of GDP in the 2001 Budget to 23.9% of GDP in the 2004 Budget. Most of this 18.1% of GDP gain (15.8% of GDP) occurred in the 2004 Budget. The projections then dropped to 9.4% of GDP by the 2007 Budget.

12) The deficit projected for 2080 rose sharply from 11.7% of GDP in the 2001 Budget to 33.5% of GDP in the 2004 Budget and dropped sharply to 13.7% of GDP in the 2007 Budget. The following table shows the makeup of the 21.8% of GDP increase from 2001 to 2004 and the 19.8% of GDP drop from 2004 to 2007:

    COMPONENTS OF CHANGE IN DEFICIT PROJECTED FOR 2080

    Component of change   2001-04  2004-07
    --------------------- -------  -------
    Receipts.............   -0.7      3.1
    Discretionary Outlays   -3.2      0.4
    Mandatory Outlays....    0.3      1.8
    Net Interest.........  -18.1     14.5
    ---------------------  -----     ----
    Deficit change.......  -21.7     19.8

As can be seen, the largest component of the rise and fall in the projected deficit is Net Interest. This shows how a relatively small difference in annual receipts or outlays can cause a much larger difference in net interest. This is because net interest is based on the debt which is the accumulation of all past deficits.

13) The table above shows that the increase in projected receipts is the largest non-interest contributor to the drop in the deficit projected for 2080. On this topic, page 188 of the 2007 Analytical Perspectives states:

"Over the last 40 years, for example, receipts have averaged 18.2 percent of GDP. Tax receipts have risen above this ratio from time to time, most recently at the end of the 1990s, but those periods of high taxes have always been followed by tax changes that have restored the average tax ratio. Although such changes require legislation and so are not implied by current law, a plausible alternative is to hold the receipts ratio constant relative to GDP. In that case, the deficit rises somewhat faster than in the base assumptions."

The cause of the drop in projected Mandatory Outlays, the next largest non-interest contributor to the drop in the projected deficit, is discussed in point 10 above.